1999 (12) TMI 769 - HC - Companies Law

Court Judgment Protects Depositors, Orders Prosecution

The court issued a judgment to protect depositors' interests and hold the petitioners accountable for fraudulent actions. The directions included ... Public deposits Issues Involved:1. Petition for writ of mandamus.2. Financial distress and non-repayment of deposits.3. Interim orders and schedule of payments.4. Non-compliance with court orders.5. Details of company assets and properties.6. Criminal complaints and investigations.7. Role of Reserve Bank of India.8. Judicial remedies and directions.Issue-wise Detailed Analysis:1. Petition for Writ of Mandamus:The petitioners sought a writ of mandamus directing the respondents to conduct an enquiry before registering any crime against them upon receiving complaints. The first petitioner, a doctorate in engineering and Managing Director of Midwest India Industries Ltd., claimed harassment by depositors due to the company's financial troubles and inability to repay deposits.2. Financial Distress and Non-repayment of Deposits:The company faced financial difficulties due to revised RBI guidelines in 1997, leading to heavy losses and inability to repay deposits to around 12,000 depositors. This resulted in numerous complaints and legal actions against the company and its Managing Director.3. Interim Orders and Schedule of Payments:On 8-2-1999, the court issued interim orders for a phased repayment schedule, requiring the company to repay matured deposits from 1996, 1997, and 1998 by specific dates in 1999 and 2000. Advocate-Commissioners were appointed to oversee the process, with specific instructions for deposit and payment schedules.4. Non-compliance with Court Orders:The petitioners failed to comply with the court's directions, including depositing required amounts, furnishing bank guarantees, and providing details of movable and immovable properties. This led to contempt proceedings and further reports from the Advocate-Commissioners highlighting non-compliance.5. Details of Company Assets and Properties:The court identified several properties owned by the company and its directors, including agricultural lands, UTI units, shares, and real estate. The petitioners' failure to deposit amounts and provide necessary documentation led to the court taking possession of certain properties and freezing bank accounts.6. Criminal Complaints and Investigations:Multiple criminal cases were registered against the petitioners for cheating and non-refund of deposits. The court noted the involvement of family members in the company's operations and the acquisition of assets using depositors' funds. The court directed the CBCID to investigate and prosecute the petitioners and other responsible individuals.7. Role of Reserve Bank of India:The RBI refused to grant a registration certificate to the company due to numerous defaults and violations of the RBI Act. A special audit revealed significant liabilities and overdue deposits, leading the RBI to issue public warnings against depositing with the company.8. Judicial Remedies and Directions:The court emphasized the need for substantial justice for the depositors, who were defrauded by the company. The court issued comprehensive directions, including:- Constituting a separate cell in the DGP's office to handle non-banking financial institutions.- Immediate investigation and prosecution by the CBCID.- RBI to initiate winding-up proceedings.- Seizure and safekeeping of company properties.- Revocation of personal protection and arrest of the Managing Director.- Consideration of establishing a separate court for non-banking financial institution fraud cases.- Remuneration for the Depositors' Association and Advocate-Commissioners for their efforts.Conclusion:The court's judgment aimed to protect the interests of the depositors and ensure accountability for the petitioners' fraudulent actions. The detailed directions covered various aspects, from criminal prosecution to asset seizure, to provide a comprehensive remedy for the affected depositors.